South Africa\u2019s agricultural and alcoholic beverage sectors will be hit by a double whammy affecting production and sales if a controversial 0.5 percentage point increase in VAT kicks in on 1 May, along with a 6.75% excise duty hike on alcoholic beverages.<\/p>\n
These higher taxes will lead to lower disposable income and second round effects on industries, with the ripple effect of lowering personal and corporate income tax collections, the National Agricultural Marketing Council (NAMC) said in an economic simulation study<\/a>.<\/p>\n \u201cTaking into account these general equilibrium effects, an increase in the VAT rate to increase government revenue by R30 billion is foreseen to increase a net tax collection of only approximately R20 billion,\u201d the council said.<\/p>\n VAT is the second-largest contributor to tax revenue after personal income tax.<\/p>\n \u201cIt remains controversial due to its regressive nature since poorer households spend a larger proportion of their income on VAT-taxed goods, unlike wealthier individuals,\u201d the council said.<\/p>\n It said industries selling goods most exposed to VAT, including vehicles, electronics, household luxury consumables, real estate transactions subject to VAT, and the retail sector, will be hardest hit.<\/p>\n \u201cFrom the primary agriculture sector perspective, all the subsectors will be negatively impacted. The simulation results show that output or sales for the forestry subsector will fall by 0.4%, followed by livestock (0.26%), field crops (0.24%), and horticulture (0.23%), respectively,\u201d the NAMC said.<\/p>\n \u201cWhereas all food manufacturing industries will be negatively impacted \u2026 fish processing will experience the most drastic effect. Sales in the fisheries industry will fall by 0.41% in the medium term, followed by grains (0.34%), fruits and vegetables (0.33%), meat (0.29%), other food industries (0.15%) and beverages (0.14%), respectively.\u201d<\/p>\n It noted that South Africa\u2019s alcohol excise framework was introduced in 2004, setting a guideline tax incidence where excise duties and VAT accounted for specific percentages of the retail price for wine, beer and spirits.<\/p>\n \u201cAdjustments to these guidelines over the years have seen excise duties consistently rise above inflation, sometimes exceeding the intended burden, thereby raising concerns among affected industries,\u201d the council added.<\/p>\n This \u201csin tax\u201d has to some degree been used to ameliorate the harmful use of alcohol which has been identified as a major public health risk, impeding progress towards the UN\u2019s health-related sustainable development goals.<\/p>\n Alcohol is responsible for 5.1% of the global burden of disease and injury, with the World Health Organisation (WHO) reporting over 3.3 million alcohol-related deaths annually, accounting for 5.3% of all deaths worldwide.<\/p>\n